Former FERC Member Releases White Paper Addressing Problems in the Nation’s Electricity Markets

Tony Clark, a senior advisor at Wilkinson Barker Knauer LLP and a former member of the Federal Energy Commission, has released Regulation and Markets: Ideas for Solving the Identity Crisis, a white paper which shows that almost 20 years after restructuring many of the nation’s electricity markets, regulators are navigating a brave new world where states want more than just affordable power.

According to the white paper, in addition to affordability, state goals now include fuel diversity, security, green energy and job creation, among other things that the administrative markets were never designed to accomplish.

Key points presented in the whitepaper include:

Regardless of the model, all states must address some of the same issues, including distribution rate design. Given the rapid development of distributed energy resources such as rooftop solar, states must decide whether their rate structures reflect the changing landscape. States should require utilities to assign fixed costs of networked service to fixed charges and variable costs to variable charges.

Vertically integrated states should consider performance-based ratemaking and price cap regulation while also supporting utilities to develop ways to provide customers with more choices and more control. State regulators should also address problems with PURPA (Public Utility Regulatory Policy Act), adopted when no concept of cost competitive utility scale renewable projects existed.

As states “untether” from the limited goal of pursuing least-cost power, vertically integrated states have numerous advantages over restructured states. Security constrained economic dispatch paired with the stability of rate based assets, which allow utilities to cover costs over the assets useful life, has demonstrated its value time and again. States can access this benefit without surrendering their control over resource decisions.

RIsks to the Restructured Administrative Market Model when states pursue ‘around market’ solutions. Restructured states must avoid straddling the middle of the road between a merchant market and simultaneously adopting state-sponsored ‘around market’ resource selection, or becoming RINO – Restructured in Name Only.

A restructured state must either fully commit to its model and reject efforts to dictate the resource mix or consider deliberately altering its regulatory model. If a state does not believe that its constituents, elected officials, utilities, regulators and stakeholders will be able to resist the temptation of ‘around market’ solutions then the state must determine whether the Restructured Administrative Market Model is really the right fit.

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